The DIB is a transformative impact-driven funding model that taps into new resources to accelerate social progress. Investors pay for the implementation of a programme and receive a return on their investment if pre-agreed results are achieved. Funds to remunerate investors come from outcome payers, usually a donor or a government agency. Financial returns to investors are commensurate with the level of impact achieved. An independent evaluator verifies results to determine success and re-payment. This approach incentivises innovations that produce durable change, it increases both effectiveness and efficiency of social development organizations, and rewards transparency and accountability.

The new DIB aims to become a ‘proof of concept’ for the funding of large-scale, system-changing programs in the education sector, and beyond. “This Development Impact Bond marks a turning point in the way social investment opportunities will be conceived in the future”, explains Phyllis Costanza, CEO of the UBS Optimus Foundation.

As David Leonhardt wrote in The New York Times, it’s possible to discern some glowing embers among the ashes of federal and municipal government inefficiency.

“When the federal government is good, it’s very, very good. When it’s bad (or at least deeply inefficient), it’s the norm,” according to Leonhardt, who quotes as support a dismal statistic from a new book by Peter Shuck, Why Government Fails So Often: “Less than 1% of government spending is backed by even the most basic evidence of cost-effectiveness.”

Those glowing embers represent data-driven, fact-based policy decisions — the kind that big data analytics makes increasingly practicable. And what better use for data-based solutions than accelerating interest in social impact bonds?

SIBs are essentially a mechanism for driving private capital in the direction of persistent, intractable social problems. They’re relatively risk-free for the government, too, since repayment is usually triggered only when savings accrue as a result of the program. This approach, also known as “pay for success,” has already been taken up by New York City and other authorities keen to turn measurable effectiveness into dollars. It has its critics, too.

New York has focused on using SIB funding to combat recidivism among young offenders emerging from the Riker’s Island detention center. A 2012 agreement with Goldman Sachs secured a $9.6 million loan, which will be repaid according to the program’s success — the city, of course, saves money if offenders don’t return repeatedly to jail.

The first Social Impact Bond was developed by Social Finance, agreed with the Ministry of Justice and Big Lottery Fund and began to offer services in 2010. Since then, much interest has been generated from public bodies, investors and social sector delivery organisations at all levels in the UK and overseas.